Small Businesses and Payment Delays

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Whether they are aware of reports that a number of large firms propose to counter the burden of a 15 per cent. base rate by deliberately delaying payments due to smaller suppliers and sub-contractors, and whether they intend to protect small businesses from such behaviour.

My Lords, the Government would be extremely concerned should the delayed payment of bills be adopted by large firms as a systematic strategy. However, there is no evidence to suggest that this practice is widespread or that it is more likely to be pursued by large companies in the present economic climate.

My Lords, I thank the noble Lord for his Answer, although I fear that it is a somewhat overoptimistic one. Is he aware —I am sure that he must be —that the Government have very commendably and very effectively encouraged an enormous growth in the number of small businesses in this country? Substantial numbers of redundant miners, steel workers and others have been encouraged to start a new life by becoming self-employed, which by and large they have managed very successfully. Does he not agree that it would be a tragedy if these people were driven to the wall by the high interest rates, about which we have just been speaking, accentuated by the unethical tactics of a few mainly monopsonistic large organisations?

My Lords, the noble Lord is trying to show that there is a link between business failure and late payment. I must point out to him that business failures are not caused by one specific factor. Indeed, if VAT registrations are examined as a sign of a healthy growing economy, they have accelerated from 500 a week in 1986 to 1,200 a week
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in 1988. That is not a sign that companies are being put out of business by the problem of late payments.

My Lords, does the Minister agree that small businesses have been responsible for some employment growth? Would it not be an awful pity if this employment creation were to be inhibited because of present interest rates?

My Lords, it is truly magnificent to hear a member of the Labour Party talking about small firms in such glowing terms, especially when one considers that, under the Labour Government, the number of people in self-employment actually fell. We of course agree that small businesses are fundamental to the growth of the whole economy.

My Lords, is the Minister not aware that noble Lords on this side of the House have always supported employment creation, whether through small firms or large firms, and that that remains the policy on these Benches?

My Lords, in view of the resolution on sub-contracting adopted by the Council of Ministers on 26th September, which expresses a need for a much sharper legal framework, with particular reference to periods of payment, does my noble friend agree that legislation is now required?

My Lords, the Government believe that the best way forward is through negotiation between individual commercial organisations, not through legislation. To that effect the Government have published two documents —Payment on Time and Prompt Payment Please, both of which are in the Library.

Lord Wallace of Coslany

My Lords, is the Minister aware that, apart from the firms mentioned by the noble Lord, Lord Monson, in his Question, a large number of health authorities are deliberately, as an act of policy, delaying payments for bills in a desperate effort to make ends meet? Does this not involve the Government?

My Lords, does my noble friend remember that the question of statutory interest was debated at length on 6th April 1982 during consideration of the Administration of
1225Justice Bill, not least because statutory interest was recommended as a way forward by the Law Commission in its report No. 88? Can my noble friend say whether the Government now support that Law Commission report, or —this is perhaps a rather frivolous suggestion —are Law Commission reports not in fashion today?

My Lords, there is nothing frivolous about Law Commission reports. There is a good deal of disagreement within small firms themselves as to whether legislation would be helpful. For instance, the CBI's Smaller Firms Council and other lobby groups are against legislation or have serious reservations about it. Under current law there is provision for individual companies to get their money. They do not use that legislation very much. There is no reason to believe that they would do so if there were additional legislation.

My Lords, is my noble friend aware that whereas it may be true that certain companies have a bad reputation in regard to paying smaller companies, a good many more companies have a positive policy of paying their smaller suppliers early as part of their social responsibility?

My Lords, with the base rate standing at about 15 per cent., what conceivable objection can there be to the proposal in the Law Commission report to introduce statutory interest? After all, it does not have to be used in litigation by anybody who does not want to use it. However, it would exist. What is the objection?

My Lords, as my noble friend Lady Oppenheim-Barnes said a moment ago, the majority of firms experience no such problems. The Government, who are very keen on small firms, have no evidence to show that this is an outstanding
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problem. However, if this really is the position, we should like to hear about it.